New Clause 9

Richard Burgon: I rise to speak to new clause 14, amendment 8, and amendments 9 and 10, which are consequential on amendment 8, tabled in my name and those of my hon. and right hon. Friends. I will first discuss new clause 14 on combating abusive tax avoidance arrangements and then our amendment on the reverse burden of proof, or the presumption of responsibility, as I choose to call it, for senior managers in the banking sector.
Labour tabled new clause 14 in the wake of Panama papers leak, which the hon. Member for East Lothian (George Kerevan) just mentioned. The new clause sets out that combating abusive tax avoidance should be established as new regulatory principle for the FCA, and requires the FCA to
“undertake, in consultation with the Treasury, an annual review for presentation to the Treasury into abusive tax avoidance”.
The new clause makes it clear that the new principle should involve
“measures to ascertain and record beneficial ownership of trusts using facilities provided by banks with UK holding companies or entities regulated by the Bank of England or the FCA, control of shareholders and ownership of shares, and investment arrangements in an overseas territory outside the UK involving UK financial institutions.”
Members will be aware that Labour published its tax transparency enforcement programme following the Panama papers leak, and the release of the information that thousands of companies listed in the Mossack Fonseca papers have financial services provided by UK banks. Our programme makes it clear that Labour will
“work with banks to provide further information over beneficial ownership for all companies and trusts that they work for.”
The new clause seeks to establish a procedure to enact that.
Last week, the Government announced a deal on the global exchange of beneficial ownership. We of course welcome that as an initial step, but it is insufficient. The measures announced by the EU this week are also welcome, but they do not go nearly far enough, because they require only partial reporting. My hon. Friend the shadow Chancellor said last week:
“The turnover threshold is far too high, and Labour MEPs in Europe will be”
doing the right thing in
“pushing to get that figure reduced much lower to make it more difficult for large corporations to dodge paying their fair share of tax.”—[Official Report, 13 April 2016; Vol. 608, c. 369.]
Banks need to reveal the beneficial ownership of the companies and trusts with which they work. That means establishing a record of ownership of the companies and trusts supported by UK banks, whether or not the owners are resident in the UK. We must ensure that Crown dependencies and overseas territories enforce far stricter minimum standards of transparency for company and trust ownership, but when UK banks are involved, it is right that a record is maintained of the beneficial owners that they advise.
The tax expert Richard Murphy has written that Jersey, Guernsey and the Cayman Islands are
“cock-a-hoop at having rebuffed calls from David Cameron that they must have readily accessible registers of beneficial ownership even for the use of UK law enforcement agencies”.
The shadow Chancellor said in response to those calls that the
“agreement is a welcome step in the right direction but it fails to do anything to tackle the tax havens based in British Overseas Territories. Failure to take responsibility for these British Dependencies substantially undermines the effectiveness of this agreement.”
Similarly, we are aware that the Financial Conduct Authority wrote to banks urging them to declare their links to Mossack Fonseca by 15 April. The FCA’s call on UK financial institutions to review links with Mossack Fonseca is welcome, but the regulator should recognise the need for complete transparency to retain public confidence.
The FCA should seek full disclosure and act without delay. The slow, drip-drip responses of the Prime Minister’s office in recent weeks have served only to fuel public concern and have been very much a lesson in how to raise suspicion unintentionally. The FCA should publish details of which financial institutions it has written to and why; what information it has asked them to provide; and what action it will take, now that the 15 April deadline has passed. Importantly, it cannot allow banks and their subsidiaries to conduct an open-ended internal investigation, but must establish an early deadline for the disclosure of all information on their relations with Mossack Fonseca, so that the regulator can take all necessary action. Campaigners Global Witness responded by saying:
“These are welcome first steps…but the UK authorities are missing the wider point. Mossack Fonseca is no bad apple; it is just one small part of a much deeper problem.”
That is why it is necessary for us to have a clear direction of travel towards recording beneficial ownership of trust services by UK banks, as we are seeking to do with this new clause.
Given the widespread concerns about tax avoidance, the British public, who bailed out the country’s banking sector, deserve to know the facts about the role of UK banks in this unfolding story. With new clause 14,  Labour has made a positive and practical proposal to take steps to increase tax transparency and publicly available information on the beneficial owners of companies and trusts registered in tax havens.
Let me now deal with the remainder of the amendments. Labour’s position was set out clearly on Second Reading and in our amendments in Committee: removing the reverse burden of proof—the presumption of responsibility—is unreasonable, unwise and, I am sorry to say, risky. We continue to support the current legislation, which was agreed by the Chancellor and in both Houses as recently as in consideration on the Financial Services (Banking Reform) Act 2013. That is why we have re-tabled our amendments on keeping the presumption of responsibility. It should not be forgotten that this measure was a key recommendation of the Parliamentary Commission on Banking Standards, which said that it
“would make sure that those who should have prevented serious prudential and conduct failures would no longer be able to walk away simply because of the difficulty of proving individual culpability in the context of complex organisations.”
The presumption of responsibility, as currently set out in legislation, applies to senior managers. It means that to avoid being found guilty of misconduct when there has been a regulatory contravention in an area for which they are responsible, they will have to prove that they took reasonable steps to prevent that contravention. This Bill removes that onus on senior bankers. The onus is entirely reasonable, proportionate and, as bitter experience tells the British people, necessary. Misconduct and misdemeanours in financial services are not merely a tale from history. In 2015, for example, the FCA had to fine firms more than £900 million, and we have also seen the LIBOR scandal, foreign exchange fines and the mis-selling of payment protection insurance to the value of up to £33 billion. The presumption of responsibility is so reasonable and necessary that the policy was introduced with cross-party support; that should not be forgotten.
The 2013 Act applied the presumption of responsibility, through the senior managers and certification regime, to all “authorised persons”. This Bill extends that authorised persons regime to a wider range of businesses but has watered down the presumption of responsibility to a mere “duty of responsibility”. The vast majority of people working in the financial sector were not, and are not, affected by the existing legislation, and would remain unaffected should our amendment pass. That is why the legislation was passed by Government Members in the first place.
In December 2013, speaking of the stricter measures being introduced by the Government, including the reverse burden of proof, the then Economic Secretary to the Treasury, the right hon. Member for Bromsgrove (Sajid Javid), said:
“The introduction of this offence means that…in future those who bring down their bank by making thoroughly unreasonable decisions can be held accountable for their actions…Senior managers could be liable if they take a decision that leads to the failure of the bank…The maximum sentence for the new offence…reflects the seriousness that the Government, and society more broadly, place on ensuring that our financial institutions are managed in a way that does not recklessly endanger the economy or the public purse.”—[Official Report, 11 December 2013; Vol. 572, c. 252.]
On that, at least, I agree with the right hon. Gentleman. It is a shame that there has been a change in position.
The Chair of the Treasury Committee said:
“Far from imperilling the UK’s global competitiveness, high standards will make the UK a more attractive place to locate.”—[Official Report, 8 July 2013; Vol. 566, c. 76.]
Other commentators and campaigners who have expressed their support include Martin Wolf of the Financial Times. We have re-tabled this amendment to state our clear opposition to this unwelcome, unnecessary and risky change.
The legislation was introduced by the Chancellor in 2013, and Members of the House should not forget that it was due to come into force in March this year. It has yet to be even tested, as the hon. Member for East Lothian said. Now is not the time to make this concession to top bankers. Both the announcement of the Chancellor’s “new settlement” with financial services—including as it does the departure of Martin Wheatley from the FCA and the scrapping of the FCA’s review of banking culture—and the recent discovery that UK banks, Crown dependencies and overseas territories are at the heart of the Panama papers tax haven scandal mean that the proposal in the Bill to remove the presumption of responsibility is the wrong proposal at the wrong time. We urge Members to support our amendment.
Let me turn to new clause 10, which was tabled by the hon. Member for South West Devon (Mr Streeter). We recognise the concern about fee-chargers in the debt management sector, who often charge clients exorbitant amounts to set up plans that can clearly add to clients’ problems, rather than helping to alleviate them. In the scenario proposed, instead of charging fees to customers, the commercial debt management companies would receive income though a statutory levy on creditors, and all creditors would be bound by a fee arrangement to which the majority agree. However, it is not clear how that helps consumers specifically. The rules could bind some commercial organisations to paying fees to other ones. There are serious competition issues here, and I am aware of the FCA’s concerns on that point.
There are questions to ask about how the creditors set the level of fees. The measures would not stop commercial debt management companies charging consumers in addition to the fee. In some circumstances, they could lead to commercial providers advising people on the basis of their creditors and not on their actual needs.
Although the new clause can be admirably presented as a way of killing off fee charging, it may well result in a lifeline being thrown to the sector. Critics may well ask why the Government should intervene to prop up this market, just at the point when the FCA is cleaning it up. Secondly, it introduces a statutory funding mechanism for one debt solution—debt management plans—when in fact there are many options available for people in debt, including bankruptcy, debt relief orders, debt management plans, administration orders, debt consolidation and individual voluntary arrangements. Only about one third of those people seeking debt advice are provided with a debt management plan; for others, it is simply not the right fit. Although we welcome the debate, we feel that it is necessary to consider how best we meet the needs of all people with debt problems, so we do not support the new clause.
Finally, let me turn to new clause 9 in the name of the hon. Member for Broxbourne (Mr Walker). I am aware that this is an issue of concern to Members in all parts  of the House. The global rules against money laundering require banks and regulated businesses to carry out enhanced due diligence on all politically exposed persons—individuals entrusted with a public function—but if the transposition of the EU directive into domestic legisslation is mishandled, a wide range of other people could be affected. It could adversely affect tens of thousands of people, including civil servants, city workers and even, as has been described, the families of armed forces officers serving our country abroad.
The EU’s fourth money laundering directive, passed last year, will need to be transposed into UK law within two years, as has been mentioned. We need to get this right to ensure that the safeguards proposed to prevent tax avoidance and money laundering and, in the light of the Panama papers, the provisions governing the register of beneficial ownership of companies and trusts do not get in the way of individuals using their bank accounts, securing mortgages or supporting charities. We believe that this is an important issue, and we are grateful to the hon. Member for Broxbourne for all his hard work explaining the potential risks to the House.

Harriett Baldwin: Let me start with new clause 9, tabled by my hon. Friend the Member for Broxbourne (Mr Walker) and others, which addresses the important issue of politically exposed persons. My colleague is an expert not only in oratory but in parliamentary procedure and I commend him for his use of both in this example. The Chancellor and I are very concerned about this issue, as my hon. Friend knows, and we are grateful to my hon. Friend for his assiduous work in collating examples that he has heard from colleagues and from the banking sector.
It is absolutely right that the “know your customer” requirements should be tailored to the risk posed, and I reassure the House that we are very much on the side of colleagues in this regard. I therefore welcome the amendment and the strong message it sends to banks as they implement these rules. The new clause also addresses guidance, and I fully agree that guidance will help the banks to take an effective, proportionate and commensurate approach to politically exposed persons. The Government intend to implement new money laundering regulations by June next year at the latest and this amendment will come into force at that time. We will consult on the new regulations this year.
As well as accepting the new clause, I want to take the opportunity to update the House on other action that we have taken to resolve these issues on behalf of Members since my hon. Friend had his Adjournment debate on 20 January. On 1 March we had a meeting with the banks that I organised with the Minister for Security from the Home Office, and on 23 March the Chancellor wrote to the banks to explain our views. We will continue to work with the banks, with the FCA and with others to ensure that a sensible and proportionate approach prevails.
I have also written not once but twice in a “Dear colleague” letter to all Members and Peers giving colleagues the name of a senior designated person to contact at each major bank should they or a family member encounter any problems. To conclude on this new clause, I thank my hon. Friend for bringing the issue to the House so that I can give this reassurance about the attention that the Government are paying to this challenge.
New clause 10, on debt management plans, was tabled by my hon. Friend the Member for South West Devon (Mr Streeter), and I thank him for his collaborative approach in tabling the amendment and the ongoing commitment shown by him and his all-party group to supporting all households in problem debt. The Government share his concerns about the potential for detriment to occur to consumers participating in some debt management plans and I recognise the importance of protecting this vulnerable group of consumers. The Government’s focus has been on comprehensively reforming the regulation of the sector to ensure that financial services firms are on the side of people who work hard, do the right thing and get on in life. Responsibility for regulating debt management firms, like that for all other consumer credit firms, transferred from the OFT to the FCA on 1 April 2014. The FCA has made addressing the risk posed to consumers by non-compliant debt management firms the highest priority, alongside payday lending.
Indeed, debt management firms were in the first group of firms to require full authorisation, and the FCA is thoroughly scrutinising firms’ business models and practices. Firms that do not meet the FCA’s threshold conditions will not be able to continue to offer debt management plans. Removing non-compliant debt management firms from the market will fundamentally reduce the risk of harm to consumers and will ensure that consumers have access to sustainable repayment plans as a result of providers acting in the best interest of consumers.
The hon. Member for Makerfield (Yvonne Fovargue) raised the question of the handover of clients with debt management plans whose firms have not been authorised by the FCA. That is an issue to which the FCA is playing close attention, to try to ensure that data protection issues are taken into account and to accommodate the disheartening position of someone with one of those plans whose firm fails to be authorised, for whom a better alternative must be found.
On the issue raised by the amendment—how debt management plans are funded—charities such as StepChange and Christians Against Poverty already successfully negotiate voluntary funding agreements with creditors through the fair share model. Introducing changes to this funding arrangement, such as mandatory contributions, may have unintended consequences, disrupting a successful funding arrangement for charities. Consequently, setting the level of this share is not supported by the not-for-profit sector. Similarly, not-for-profit providers are concerned that formalising fair share contributions may change charities’ relationship with creditors and compromise their independence. The perception of charities by their clients as impartial advocates is essential to encouraging households in problem debt to come forward for support.
With the FCA’s authorisation process ongoing, and the anticipated changes in the market that that will bring, now is not the right time to introduce changes to the way debt management plans are funded. Any consideration of changes to funding arrangements should take place when the shape of the debt management market is known. The best setting for looking at the full landscape of debt advice funding will be in the context of the public financial guidance review, which includes a commitment for the Government to monitor the  impact on the FCA authorisation process. If necessary, the funding arrangements for debt advice will be reviewed, and the Government may consider broadening the funding base to include other sectors, to ensure that consumers continue to get the help they need. I trust that this assures my hon. Friend the Member for South West Devon that the Government continue to consider it a priority to help those facing problem debt, and that he will not press his amendment to the vote.
I shall deal now with amendments 1, 2, 8, 9, and 10, which would apply the reverse burden of proof to senior managers in the banking sector or in all authorised financial services firms. We reject both sets of amendments, above all because the senior managers and certification regime with a statutory duty of responsibility will be an extremely effective tool for holding senior managers to account.
The duty of responsibility will extend to all senior managers. The discredited approved persons regime will be replaced. Firms must identify exactly what their senior managers are responsible for. Senior managers will not be able to wriggle off the hook because they did not know what was being done in the areas for which they are responsible. The reverse burden of proof is not needed to deliver what we want to deliver—a culture change.
Lord Turnbull, who was a Cross-Bench member of the Parliamentary Commission on Banking Standards, said:
“In future, senior managers will have to take responsibility for what goes on in the teams for which they are responsible and for the actions of the people whom they have appointed and thereby given accreditation.”
He went on to say:
“I still fail to see why the reverse burden of proof is the only way to get people to understand that. . . I believe that the proposal now in the Bill—
that is, the duty of responsibility—
is superior.”—[Official Report, House of Lords, 15 December 2015; Vol. 767, c. 2026-28.]
In written evidence to the Public Bill Committee, the Building Societies Association stated:
“The lack of individual accountability to date is mainly the result of a failure to allocate responsibilities in firms’ corporate governance frameworks. Because this deficiency will be fully addressed by the new strengthening accountability in banking rules (through responsibility maps, individual statements of responsibility, handover arrangements), the reversed burden of proof is unfair and is redundant.”—
not my words, but those of the Building Societies Association.
Today’s debate is about what happens when things go wrong and a firm breaks a regulatory requirement. Under the reverse burden of proof, the senior manager responsible for the area of the firm where the breach occurred would have to prove that they had taken reasonable steps to prevent it. The Bill will impose a statutory duty of responsibility on senior managers. Senior managers would still be required to take reasonable steps to prevent breaches of regulations in the areas of the firm’s business for which they are responsible. However, when such a breach occurs, it will fall to the regulators to show that the responsible senior manager had failed to take such steps. This duty will be extended with the senior managers and certification regime to senior managers in all authorised financial services firms, ensuring that they are held to the same high standards as those in banks.
Contrary to the allegations of the hon. Member for Leeds East (Richard Burgon), the duty is in no way “soft” on bankers. A senior manager can be found guilty of misconduct if a breach of regulatory requirements occurred in the area of the firm’s business for which they are responsible and they did not take reasonable steps to prevent it, whether they were aware of the contravention or not. The hon. Gentleman quoted a previous Economic Secretary, my right hon. Friend the Member for Bromsgrove (Sajid Javid). I think that he might be confusing the reverse burden of proof with the criminal offence of recklessness causing a bank to fail. I can assure him and the House that that criminal offence, with a possible seven-year sentence attached, came into effect in March.
New clause 14 seeks to give the FCA and PRA a statutory duty to have regard to combating tax avoidance, and for them to report annually to the Treasury. I welcome the opportunity once again to set out the measures that this Government have taken—far more than any previous Government—to tackle tax evasion, tax avoidance and aggressive tax planning. We have become a world leader in tax transparency. However, as the UK tax authority is Her Majesty’s Revenue and Customs, rather than the FCA or PRA, it is responsible for ensuring that businesses and individuals pay the taxes they owe.
Last week we set out a far more effective package of proposals to tackle the problem of tax evasion and avoidance, ensuring a multi-agency approach by strengthening HMRC and involving relevant bodies such as the FCA. The Government are committed to giving HMRC the tools to do its job, whether by introducing over 40 changes to the tax laws, or by providing additional funding to strengthen its capability in key areas. I could go on, Madam Deputy Speaker, about all the measures we have introduced—

Clause 24

Clause 36

Proceedings interrupted (Programme Order, 1 February).
The Deputy Speaker put forthwith the Question necessary for the disposal of the business to be concluded at that time (Standing Order No. 83E).
Schedule 2

Harriett Baldwin: I beg to move, That the Bill be now read the Third time.
It has been a pleasure to take this legislation through this House. There has been a good level of interest from Members from all parts of the House, and a wealth of suggestions and recommendations have been made, which is a testament to how important the issues in this Bill are. Indeed, some of the suggestions have made their way into the Bill.
The Bill will: make the Bank of England more transparent and accountable to Parliament and the public; further strengthen standards in the financial services sector; and strengthen protections for consumers, especially when accessing the new pensions freedoms. Building on the fundamental reforms to the regulatory architecture introduced by the Financial Services Act 2012, the Bill delivers a set of important evolutionary changes to the Bank. It ends the subsidiary status of the Prudential Regulation Authority and creates a new Prudential Regulation Committee, on the same footing as the Monetary Policy Committee and Financial Policy Committee. It makes the oversight functions the responsibility of the whole court, ensuring that every member of the court, executive and non-executive, can be held to account for the use of these functions. It also enhances the accountability of the Bank to Parliament by making the whole Bank subject, for the first time, to National Audit Office oversight. If I may, Mr Deputy Speaker, let me correct something I said in error earlier, when I confused NAO with FOI—freedom of information. Of course, FOI has applied to the Bank of England for some time; this Bill brings in the NAO oversight.
The Bill also implements the remaining recommendation of the Warsh review, updating requirements for the timing of MPC publications and meetings. As my right hon. Friend the Member for Chichester (Mr Tyrie) said on Second Reading, this Bill
“brings the Bank of England more up to date as an institution, and in doing so it should greatly improve the scope for making it accountable to Parliament and the public”.—[Official Report, 1 February 2016; Vol. 605, c. 667.]
During the passage of this Bill we have rightly devoted considerable time to the question of the appropriate role for Parliament. The Treasury Committee plays a crucial role in providing effective scrutiny of the FCA’s chief executive, and the agreement that we have announced today reinforces that.
The second aspect of the Bill is that it strengthens conduct in the financial sector by extending the senior managers and certification regime to all firms covered by the discredited authorised persons regime that we inherited. We all agree on the vital importance of high standards of conduct in the UK financial services industry. This Government have already taken the initiative in this area; we took a key step by bringing in the regime for the banking sector in March this year. The expansion of this new regime to all authorised persons will enhance personal responsibility for senior managers across the industry and raise standards of conduct more broadly.
Thirdly, the Bill introduces support for consumers accessing the new pension freedoms. To support consumers who, from April 2017, will be able to sell their annuity income stream in the secondary market for annuities, the Bill will extend the scope of the Pension Wise guidance service to cover these consumers, and introduce a requirement that, in effect, ensures that consumers with a high-value annuity receive appropriate financial advice before making the decision to sell their annuity income stream. These measures will help make consumers better informed and less vulnerable to mis-selling and scams.
In order to ensure fairness for people seeking to access their pensions early, the Bill will also give the FCA a new duty to cap early exit charges that act as a  deterrent. This will provide real protection to consumers in contract-based pension schemes who are looking to make use of the freedoms.
The Bill also supports the Government’s consumer protection objectives by giving the Treasury a new power to provide financial assistance to illegal money-lending teams tasked with tackling loan sharks. Today, we have also added the amendment tabled by my hon. Friend the Member for Broxbourne (Mr Walker).
In closing, I thank all right hon. and hon. Members who have contributed to the debates, both by speaking and by tabling amendments. In particular, I thank all the members of the Public Bill Committee for their efforts and for the time spent going through the Bill clause by clause. The hon. Members for Leeds East (Richard Burgon) and for Wolverhampton South West (Rob Marris) provided challenging discussion throughout the passage of the Bill. The hon. Members for East Lothian (George Kerevan) and for Kirkcaldy and Cowdenbeath (Roger Mullin) gave close scrutiny to the Bill. My right hon. Friend the Member for Chichester made valuable contributions that have been most helpful and insightful, particularly on Treasury Committee matters.
I also thank the Treasury Whips, my hon. Friends the Members for Truro and Falmouth (Sarah Newton) and for Central Devon (Mel Stride), who have provided me with much support both during and outside Bill debates. The Chairs of the Public Bill Committee, my hon. Friend the Member for Altrincham and Sale West (Mr Brady) and the hon. Member for Sedgefield (Phil Wilson), and you, Mr Deputy Speaker, have handled our scrutiny well.
I thank my Parliamentary Private Secretaries, who took on the important and thankless task of sitting behind me during our sittings and ensuring that I got the right briefing, for supporting me generally throughout this process.
Lord Bridges and Lord Ashton have done a fantastic job in taking the Bill through the other place, and I trust that they will continue to do so when the Lords consider our amendments.
Finally, I give thanks to the organisations that have assisted us in developing the Bill—the Bank of England, the National Audit Office and the Financial Conduct Authority. I must also give sincere thanks to Treasury officials, lawyers and parliamentary counsel, who spent many hours in the box, drafting amendments and briefings for these debates.
We have had useful and wide-ranging debates, and our discussions with Members in all parts of the House were constructive, even when we did not agree and had to settle matters with a vote. We have shown an understanding of each other’s position and improved the legislation as a result. The Bill will now go back to the other place, where their lordships will consider the useful changes that we have made to the Bill. I hope that they will welcome the legislation in its current form.
In conclusion, this Bill makes changes to strengthen the governance and accountability of the Bank of England. It will contribute to the Government’s commitment to strengthen standards across the financial services industry and ensure that consumers are well protected. I commend its Third Reading to the House.

Bill read the Third time and passed, with amendments.

That the draft Modern Slavery Act 2015 (Code of Practice) Regulations 2016, which were laid before this House on 14 March, be approved.—(Charlie Elphicke.)
Question agreed to.